Bankruptcies still rising

The recession has left consumers in its wake. In the metro Chicago area, 48,510 individuals filed for bankruptcy protection last year — 39 percent more than filed in 2008, which saw a 46 percent increase from 2007. The increases were even sharper than the rise in bankruptcies nationwide (which jumped 31 percent in 2008 and 32 percent last year.)

The latest national data shows this year’s bankruptcy filings as of August at more than 1 million — up 8 percent from the same period in 2009, according to the American Bankruptcy Institute, a Washington, D.C.-based research and information organization.

The Chicago metro area’s bankruptcy cases are on pace to rise even more, with 38,376 individuals filing so far this year.

Short sales triple since 2008

The story focuses on a certain section of Manassas, VA, but applies to a wide swath of U.S. real estate. The article says that when the foreclosure wave swept through, “banks seized nearly every fourth house” in the Brewer Creek Place neighborhood. Now “the U-Hauls are back,” but this time homes are changing hands through short sales.

As the article explains:

That kind of deal is called a short sale, and it’s sweeping the country. In these deals, a lender allows a troubled borrower to sell a home for less than what’s owed on the mortgage.

Completed short sales have more than tripled since 2008, and 400,000 of these deals are projected to close this year, according to mortgage research firm CoreLogic. The giant mortgage financier Fannie Mae approved short sales on 36,534 home loans it owned in the first half of the year, nearly triple the number in 2007 and 2008 combined. Freddie Mac, its sister company, approved 22,117 in the first half of 2010, up from a mere 94 in the first half of 2007.

Short sales better than foreclosure

Although sad and painful for the sellers–and often for their neighbors and the community–the trend could be a form of good news. For one, it shows banks may be starting to recognize the folly of mass foreclosure and its attendant damage to community property values. Second, it shows consumers are willing step into the breach, thereby establishing a floor for the housing market, as well as keeping inventory in the hands of homeowners rather than speculators.

There’s also the aspect of helpful government interaction–finally:

The Obama administration, meanwhile, has been seeking to encourage even more short sales as a way of reducing the nation’s inventory of vacant and abandoned properties.

In April, the administration launched a program that financially rewards lenders and borrowers for successfully negotiating a short sale if the borrower’s loan could not be modified through the federal government’s year-and-a-half-old foreclosure prevention effort. Lenders receive $1,500 and borrowers another $3,000 for moving expenses. Under the initiative, all eligible borrowers must be notified of the option to sell their homes short before their loans are referred to foreclosure.

The Treasury-run program also sweetens the deal for borrowers by relieving them of any obligation to repay a deficiency.

Overcoming resistance

The trend is also welcome given the existence and former resistance from the many players who may be involved. Besides balky banks, “transactions may also have to be green lighted by investors who own the mortgages, local tax authorities, appraisal firms, escrow companies, homeowners associations, mortgage insurance companies and subordinate lien holders.” Because of Wall Street’s so-called “financial engineering,” investors downstream from the original mortgage note often have been involved via trust law and investment in tranches of securitized loan packages.

As such, they can sue if lenders dilute their earnings by negotiating mortgage relief with a distressed homeowner. That’s why filing for Chapter 13 protection can be so helpful. In rare cases, even Chapter 7 filers are in a position to keep their homes.

No bipartisan vote on reducing outsourced jobs

Any sign of cooperation between lenders and the government is encouraging. A story in today’s Washington Post is more evidence of what we’ve become accustomed to; here’s the lede from the story headlined “Senate GOP blocks bill that would promote less outsourcing:

Senate Republicans on Tuesday blocked a Democratic plan to encourage companies to bring jobs back from overseas, as a united GOP caucus voted against a motion to debate the measure on the Senate floor.

The motion failed 53 to 45.

The legislation would have raised taxes on corporations that shift operations overseas, costing U.S. jobs. It also would have awarded companies that bring jobs back from abroad by offering a two-year hiatus from payroll taxes for those positions.

The U.S. from another perspective

It makes you wonder what it’s going to take to get Congress moving on meaningful jobs legislation. A very thoughtful piece ran in the Sept. 27 Op-Ed section of The New York Times, by Roger Cohen, a British-born journalist with an international perspective.

Addressing the divisive, surly mood in the U.S., Cohen writes, “Corporations and individuals are hoarding cash, when they have any, because they’re not buying into the recovery.”

Then he provides an example of the pressing need for jobs and historical framework for a Wall Street run amok:

This is not a momentary phenomenon. Nobody seems to think unemployment is going to fall significantly from 9.6 percent — a level more often associated with France — in the near future. Get used to the new normal.

I spoke to a retired Wall Street executive who got out a few years back and set up a small business where he had to make payroll (sobering), but was freed from the debilitating short-termism of financial institutions that, over his career, had become dominated by traders “who look at economic opportunity rather than economic conditions.”

He said the final straw came in 2002. Top executives at the bank where he worked gathered to discuss their bonuses. The issue before them was whether to maintain those bonuses in a time of economic contraction, which would require firing 5 percent of the workforce, or take a 25 percent bonus cut, which would allow those jobs to be kept.

“The guy running the meeting asked for a show of hands on who would accept a reduced bonus,” he said. “There were 30 of us in the room. Three raised their hands. I was one of them.”

Cohen also makes a good case for bipartisan cooperation in Congress. If you’re wondering how your own situation fits into the larger national scene, all these stories and columns make for worthwhile reading.

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too.

Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. If you think your home is a candidate for a short sale, be sure to ask your attorney about it–it could greatly affect your standing and strategy for starting over.

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